CITIC SEC: Hong Kong stock market back in high dividend growth period, adjustment of Hong Kong stock connect dividend tax is imperative.

CITIC SEC released a research report stating that from January 1, 2024 to November 30, 2024, the total dividend amount of all Hong Kong stocks reached 1.2251 trillion yuan, a year-on-year increase of 13%, marking a return to the high dividend growth period of 2021 and 2022. With dividend payment levels relatively close, the dividend yield of Hong Kong stocks reached 4.2%, 1.9 times higher than the dividend yield level of A shares. In terms of industry breakdown, the financial, real estate, and energy industries have the highest dividend amounts and dividend yields. From the perspective of individual stocks, the companies with high dividends in Hong Kong stocks are generally state-owned enterprises listed on the Hong Kong stock market. In addition, under the new accounting standards, it is expected that insurance funds will continue to increase allocation to high dividend assets in 2025. Adjustment of the Hong Kong stock dividend tax is imperative and will enhance the attractiveness of high dividend stocks. CITIC SEC's main points are as follows: Adjustment of the Zhongzheng Dividend Index, continuous inflow of funds into dividend ETFs With index adjustments and the 10-year bond yield breaking 2%, the cost-effectiveness of dividend assets is highlighted. The Zhongzheng Dividend Index was adjusted on December 16, 2024, and pre-adjusted constituent stocks showed that the financial and cyclical industries continue to dominate. The stock dividend yield TTM increased from 5.40% to 5.55% after the index adjustment, and ROE increased from 5.00% to 5.24%, with various fundamental indicators showing improvements to varying degrees. Dividend ETFs In December, there was a continuous net inflow of funds into dividend ETFs, with a total inflow amount of 10.833 billion yuan as of December 20, 2024, and a total size of dividend ETFs of 79.294 billion yuan. From the perspective of holder structure, institutional investors are the main holders of dividend ETFs, with the proportion of institutional holders of low-volatility dividend ETFs reaching 91.64%, far higher than that of individual investors. Boosted confidence, gradual recovery of Hong Kong stock valuations. Hong Kong stock indices experienced a major increase at the end of September. From a valuation perspective, the current valuation of Hong Kong stocks is still at a historically low level. In terms of purchase amount, the Hong Kong stock connect realized net fund inflows for 17 consecutive months from July 2023 to November 30, 2024, and the short selling ratio of Hong Kong stocks fell below the historical average. Differentiation of insurance fund yields, room for increasing high dividend positions With interest rates running at low levels, there is a differentiation in insurance fund yields. Looking at the investment income of insurance companies listed on the A-share market in 2024 H1, there is a differentiation trend between net investment yield and total investment yield, mainly due to the continued decline in domestic interest rates and the scarcity of high-quality assets. The total market value of insurance company heavy stocks has significantly increased, but the proportion of high dividend stocks has decreased, with room for further increase. Based on data from the third quarter of 2024, the total market value of heavy stocks held by insurance companies was 482.494 billion yuan, an increase of 111.61 billion yuan compared to the previous period (the mid-year report of 2024), with banks being the main industry of heavy holdings, accounting for 36.49%. Looking at the dividend yield TTM, the proportion of high dividend stocks (dividend yield TTM greater than 3%) held by insurance funds has slightly decreased, indicating that there is still significant room for insurance funds to increase their allocation to high dividend stocks. In addition, the dividend yield level of heavy stocks held by insurance companies is highly correlated with the relative strength of the Zhongzheng Dividend Index and the overall market, with the current dividend yield of heavy stocks held by insurance funds showing a slight decrease. The dividend yield of the Zhongzheng Dividend Index and the 10-year bond yield spread are continuously rising. The dividend yield of the Zhongzheng Dividend Index and the 10-year national bond yield have a spread of 3.25%, and the crowding level of the Zhongzheng Dividend Index relative to the overall market is at the 35.24% percentile level within the year, indicating an improvement in cost-effectiveness. Under the new accounting standards, it is expected that insurance funds will continue to increase allocation to high dividend assets in 2025. High dividend stocks are suitable investment targets for insurance funds under the new accounting standards. It is expected that the scale of insurance funds' incremental allocation to high dividend assets and inclusion in OCI accounting items in 2025 will reach 809.9 billion yuan. The reduction of dividend distribution fees is expected to alleviate the burden on listed companies and encourage more dividend distribution. In addition, adjustment of the Hong Kong stock dividend tax is imperative and will enhance the attractiveness of high dividend stocks. In 2024, Hong Kong stocks saw a return to a high dividend growth period, with a significant advantage in dividend yield level over A-shares From January 1, 2024 to November 30, 2024, the total dividend amount of all Hong Kong stocks reached 1.2251 trillion yuan, a year-on-year increase of 13%, marking a return to the high dividend growth period of 2021 and 2022. With dividend payment levels relatively close, the dividend yield of Hong Kong stocks reached 4.2%, 1.9 times higher than the dividend yield level of A-shares. In terms of industry breakdown, the financial, real estate, and energy industries have the highest dividend amounts and dividend yields. From the perspective of individual stocks, the companies with high dividends in Hong Kong stocks are generally state-owned enterprises listed on the Hong Kong stock market. Companies that implement dividends can achieve relative excess returns, but need to beware of the "low valuation trap" Companies' earnings were statistically analyzed based on whether they implemented dividends and dividend yield rankings. The results show that companies that implemented dividends generally outperformed companies that did not implement dividends and were able to achieve excess returns. Looking at the average annual changes in returns from 2019 to 2024, companies that implemented dividend policies achieved 8.3% and 3.0% excess returns in the current year and the following year, respectively. From the perspective of dividend yield, although there is a certain positive correlation between dividend yield and return level, it is not necessarily the case that higher dividend yield leads to higher returns. It is important to be aware of the "low valuation trap" that exists in companies with excessively high dividend yields. Additionally, companies with a strong intention to distribute dividends are more likely to achieve excess returns, with companies experiencing four consecutive years of increased dividend yields outperforming those with decreased dividend yields by an average of 15%. Hong Kong dividend indices generally outperform broad-based indices and have significant advantages in indicators such as maximum drawdown, volatility, and Sharpe ratio There is a rich variety of dividend indices in the current market, with the Hang Seng, Zhongzheng, and S&P indices all releasing corresponding thematic indices. In terms of returns, Hong Kong dividend indices generally outperform broad-based indices in the past three years and also have significant advantages in volatility and maximum drawdown. The indices generally have a high allocation to industries such as banks, non-bank financials, and transportation, focusing mainly on medium to large-cap companies, with the allocation to companies with market capitalization exceeding one billion reaching 50%. Risk factors: Historical data does not guarantee future returns; domestic policy effortsImplementation effects and economic recovery fell short of expectations; both domestic and international macro liquidity tightened more than expected.Hier ist dein Kaffee.